Indian Rupee Rises to Three-Week High on Europe, U.S. Optimism
India’s rupee rose to a three-week high after a German court allowed ratification of a bailout fund and on speculation the Federal Reserve will announce more bond purchases to spur economic growth.
The currency strengthened for a second day as exchange data showed foreign funds added $232 million to their Indian share holdings. It briefly pared gains after a government report showed factory output grew 0.1 percent in July from a year earlier, falling short of the median forecast of economists in a Bloomberg survey for a 0.5 percent gain.
“Further stimulus from the Fed, likely to be announced this week, is creating a positive backdrop for risk appetite,” said Jonathan Cavenagh, a Singapore-based strategist at Westpac Banking Corp. (WBC) “However, we suspect the poorer domestic fundamentals are largely priced into the rupee at current levels.”
The currency advanced 0.2 percent to 55.2300 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 55.1475 earlier, the highest level since Aug. 23. The rupee has gained 0.4 percent over the past two days as the Dollar Index, which tracks the greenback against six major trading partners, dropped 0.9 percent.
One-month implied volatility, a measure of exchange-rate swings used to price options, fell 40 basis points, or 0.40 percentage point, to 8.50 percent, the lowest level since September 2011.
Germany’s top constitutional court rejected bids to block ratification of a permanent euro-area rescue fund, while ruling the country’s 190 billion euro ($245 billion) contribution can’t be increased without legislative approval. The Federal Reserve begins a two-day meeting today, with Goldman Sachs Group Inc. and JPMorgan Chase & Co. predicting the Fed will undertake a third round of quantitative easing. Euro-area finance ministers are set to start meetings on Sept. 14.
India’s inflation picked up to 7.05 percent in August from 6.87 percent in July, according to the median estimate in a separate Bloomberg survey for data due Sept. 14.
Three-month onshore rupee forwards were at 56.15 per dollar, compared with 56.36 yesterday, and offshore non- deliverable contracts were at 56.04 from 56.25. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.
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